No delay in issuance of notice u/s 158BD if AO records satisfaction in time

Issue before Court:

Whether ITAT was right in dismissing appeal of revenue on ground of delay in issuance of notice u/s 158BD.

Brief facts:

• On 03.08.2000 a search was conducted under Section 132 of the Act at the business premises of M/s Friends Portfolio Pvt. Ltd. and at the residential premises of its Director, Shri Manoj Aggarwal.
• During the search and the course of investigation and assessment proceedings DCIT found that that Sh. Manoj Aggarwal provided bogus accommodation entries to various individuals. The beneficiaries included the present respondent-assessees who received accommodation entries in lieu of cash.
• The assessment u/s 158BC of M/s Friends Portfolio Ltd. was completed on 29.08.2002. The AO, after considering the materials, recorded to his satisfaction and issued a letter to the respective AO’s of the respective assessees. Thereafter, the case of the assessees was taken up for scrutiny as per the provisions of section 158BD and statutory notices u/s 143(2) and 142(1) were issued and served upon them. Notice u/s 158BD was issued on 10.07.2003 & 18.07.2003 respectively. Assessments were framed by making various additions.
• CIT (A) in case of sudhir Dhingra deleted additions on account of absence of proper evidence and dismissed appeal in case of Renu Verma. In case of Renu Verma ground of not proper recordation of satisfaction was agitated before CIT (A) but the same was disallowed by CIT (A).
• Before ITAT cross appeal was filed by Sudhir Dhingra and appeal filed by Renu Verma by taking ground that assessment u/s 158BC liable to quash on ground of delay in issuance of notice u/s 158BD.
• ITAT allowed appeals on this ground and quashed the assessment.

Contention of the revenue:

• The satisfaction note recorded on 13-02-2003 in the present case, was not delayed. It was submitted that CIT vs. Calcutta Knitwears, Ludhina 362 ITR 673 (SC) is decisive in that the outer period of two years meant for completion of the searched person’s assessment is inconclusive of the time period for issuance of notice to the third party.
• In CIT Vs. Calcutta Knitwears (Supra) it was held that

“The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searche person under Section 158BC of the Act;

(b) along with the assessment proceedings under Section 158BC of the Act; and

(c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person’.

• Counsel for the respondent assessee did not dispute that the satisfaction note issued in this case met with the requirements of law, as to the adequacy or sufficiency of reasons recorded in the “satisfaction note”.

Contention of the assessee:

• The notice u/s 158 BD should be issued after 60 days from the date on which satisfaction was recorded.
• The notice was delayed hence assessment made is liable to be vacated.

Held by the Court:

• Having placed due regard to the declaration of law made by the Supreme Court which specified three possible points in time when notice under Section 158BD can be issued to third party/assessee, on the basis of material found on the premises of the searched person, the period of five months spent by the AO of the searched person in finalizing the satisfaction note, can be said to have been proximate to the assessment proceedings.
• We also recollect the decision of Court in Commissioner of Income Tax v. Raghubir Singh Garg ITA No. 1420/2010 decided on 27.08.2014. In that case, the search took place on 29.08.2002 and the satisfaction note was recorded on 16.01.2003 i.e. within a period of 4 ½ months. The Court was of the opinion that the satisfaction note could be upheld. Following the said decision it is held that there was no delay in issuance of notice under Section 158BD in the facts of the case.

Conclusion:

Hon’ble HC did not find any merit in the ground of delay in issuance of notice. Court further remitted the matters ITAT to decide afresh on merits. In the light of the observations of the Supreme Court in Calcutta Knitwears, particularly the contextual facts discussed (i.e. completion of the searched party’s assessment on 31-03-2005, satisfaction note under Section 158BD issued on 15-07- 2005 and notice issued on 10-02-2006) it cannot be said that the delay in issuing the notice (although the satisfaction note was recorded within reasonable time) was fatal to the block assessment against present assesse.